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Inflation, other factors to determine RBI's policy stance

Last Updated: Friday, November 15, 2013 - 19:56

Mumbai: The Reserve Bank Friday said several factors, besides inflation, will determine the stance of the monetary policy that will be announced next month.

"The weak state of the economy, as well as the good kharif and rabi harvest, will generate disinflationary forces that will help, and we await data to see how these forces are playing out. No single data point or number will determine our next move," RBI Governor Raghuram Rajan said here.

With both retail and wholesale inflation ruling high, it is generally expected that the RBI will further raise policy rates to deal with rising prices.

Inflation as measured by the wholesale price index was at an eight-month high of 7 percent, while retail inflation stood at a seven month high of 10.09 percent in October.

However, the eight core-sector industries expanded by 8 percent in September, the highest rate in 11 months. This pulled up the Index of Industrial Production for the month to 2 percent compared with 0.43 percent in August.

"Inflation comes from demand exceeding supply and it can be curtailed only by bringing both in balance. We need to reduce demand somewhat without having serious adverse effects on investment and supply. This is a balancing act, which requires the Reserve Bank to act firmly," Rajan said.

In the past two consecutive policies, the RBI raised the repo rate by 0.25 percent each in view of the worsening price situation. The next policy is scheduled on December 18.

"I think the market understands what we are trying to do. But we do need a more carefully spelt out monetary policy framework than we have currently. Action on the framework will follow the submission of the Urjit Patel Committee report, which is expected to submit its report by end December 2013," Rajan said.

The committee is examining the current monetary policy framework and will recommend steps to revise and strengthen it and make it transparent and predictable.

First Published: Friday, November 15, 2013 - 19:56
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